Number of Midlands pension schemes to be bailed out likely to increase

BIRMINGHAM.- Nearly 20% of schemes that have entered into the Pension Protection Fund (PPF) are failed Midlands based companies. This is an over representation compared to the rest of the nation and this figure is likely to rise due to the looming closures of car and manufacturing production plants, according to Aon Consulting in Birmingham, a leading pension, benefits and HR firm.

Pension schemes are eligible to enter the PPF, the government pension lifeboat, if the company attached to the scheme goes through a qualifying insolvency event and the assets held by the scheme are not sufficient to provide a minimum level of benefits promised. Once a scheme enters the PPF, if members are not yet of retirement age they will only receive a pension of up to 90% of what they are entitled to under the scheme. And even this level could potentially reduce as more underfunded schemes require support.

Following an insolvency event, schemes take two years to enter the PPF on average. This process is known as the Assessment Period. If the process is not managed efficiently it can take much longer. This means considerable uncertainty for members of such a scheme, and reduces their ability to plan effectively for their retirement.

By working in collaboration with pension schemes entering an assessment period for the PPF, Aon Consulting in Birmingham has identified three key areas in which scheme trustees might prepare themselves for the process ahead:

1. Meeting tight deadlines and completing mandatory tasks
There is a specific process to enter the PPF, and the vast majority of trustees will never have faced this situation before. The nature of the PPF assessment period means a significant increase in workload in managing a pension scheme. Failure to adhere to the legal obligations could result in civil action against the Trustees.
2. Communication with members
The PPF consider it essential for Trustees to keep members fully informed throughout the assessment period.
3. Financial Management
The Trustees have to balance the need for completing tasks with managing the limited assets of the scheme in a cost effective manner. Without any experience of the process, Trustees may struggle to prioritise tasks correctly.

Matthew Harvey, pensions consultant at Aon Consulting Birmingham comments: “Unfortunately Midlands firms are over represented amongst schemes currently in the PPF. This comes down to the large number of automotive and manufacturing firms in this area who have traditionally offered final salary pension schemes to their employees. I fear we will see the Midlands being an even larger source of schemes in the PPF in the future.

“Aon Consulting have centres of excellence that have gained experience of guiding trustees successfully though the Assessment Period. We have a dedicated resource in Birmingham, and we have built up a good relationship with the PPF through open and honest communication.
Combined with the technical knowledge and PPF specific tools puts us in an ideal situation to minimise what is a difficult time for Trustees and scheme members alike.”

At the end of March, the PPF announced the 100th scheme was admitted into the PPF, meaning there are now over 31,000 people who have their pensions protected by the PPF. In addition, there remain 290 schemes in the assessment period.